#23854-rev-MYREN, Circuit Judge 

2006 SD 62

IN THE SUPREME COURT 

OF THE 

STATE OF SOUTH DAKOTA 

* * * * 

MET LIFE AUTO AND HOME 

INSURANCE COMPANY, Appellant, 

 v. 

GREGORY C. LESTER, Plaintiff and Appellee, 

 and 

LUKE WETER, Defendant. 

* * * * 

APPEAL FROM THE CIRCUIT COURT 

OF THE SEVENTH JUDICIAL CIRCUIT 

PENNINGTON COUNTY, SOUTH DAKOTA 

* * * * 

HONORABLE JEFF W. DAVIS 

Judge 

* * * * 

ANTHONY P. BOLSON of 

Beardsley, Jensen & Von Wald 

Rapid City, South Dakota Attorneys for appellant. 

GEORGE BEAL of 

Beal Law Office Attorneys for plaintiff 

Rapid City, South Dakota and appellee Lester. 

* * * * 

 CONSIDERED ON BRIEFS 

 ON FEBRUARY 13, 2006 

 OPINION FILED 7/12/06 
#23854 

MYREN, Circuit Judge 

[¶1.] Met Life Auto and Home Insurance Company (Met Life) appeals a 

judgment that denied subrogation. We reverse. 

FACTS 

[¶2.] On April 20, 2004, Luke Weter (Weter) backed his car into a brick wall 

owned by Gregory Lester (Lester). Weter was insured by USAA Casualty Insurance 

Company (USAA). Lester had a homeowner's property insurance policy with Met 

Life. 

[¶3.] Lester sought compensation from Weter's insurer, USAA. While 

negotiating with USAA, Lester filed a claim with Met Life. Met Life sent an 

adjuster who estimated that the damage could be repaired for $3,685.18. Met Life 

subtracted Lester's $1000 deductible and issued him a check for $2,685.18. On 

December 20, 2004, Met Life sent a "1st Notice of Claim" to USAA requesting 

$2,685.18. 

[¶4.] Lester believed his damages were greater than those paid by Met Life. 

He filed an action in small claims court against Weter and his insurer, USAA. 

Weter removed the action to circuit court. After a settlement conference, Weter and 

USAA agreed to settle Lester's claim for a total payment of $9,000. Because USAA 

had received notice of claim for subrogation from Met Life, the settlement was 

structured to address that subrogation claim. USAA agreed to deposit the amount 

of the subrogation claim ($2,685.18) with the clerk of courts to be held for 

distribution as ordered by the court. The remaining $6,314.82 was paid directly to 

Lester. The circuit court reviewed the settlement agreement and entered a 

judgment and order approving settlement and deposit with the clerk. This 
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judgment and order specifically required Lester's attorney to serve notice of the 

deposit upon Met Life. Lester's attorney provided that notice and Met Life filed its 

objections. Met Life asserted that the circuit court did not have jurisdiction over it 

because it was not a named party, but then requested the court disburse the entire 

amount of the deposit to it. Lester responded by arguing that the funds had been 

deposited with the court under SDCL 15-6-67 and SDCL ch 21-43 and suggested 

that Met Life should move to intervene if it had concerns over not being a named 

party. 

[¶5.] On July 11, 2005, Weter was dismissed from the proceeding. Notice of 

entry of that order was entered on July 13, 2005. No appeal of that order has been 

filed. Weter is not participating in this appeal. 

[¶6.] On July 11, 2005, the circuit court conducted a motion hearing in 

which Lester and Met Life both participated through their attorneys. Met Life's 

attorney made the first argument of the day. He squarely addressed the 

substantive issue of subrogation. He did not claim that the court had no 

jurisdiction over Met Life. In his responsive argument, Lester's attorney noted that 

Met Life earlier claimed lack of jurisdiction. The circuit court suggested that the 

parties agree to the jurisdiction of the court so that the merits could be addressed 

and the matter resolved. Both parties agreed and no further argument regarding 

jurisdiction was made to the court. 

[¶7.] After listening to the positions of both parties, the circuit court ruled 

from the bench explaining that this Court's ruling in Westfield Ins. Co. v. Rowe, 

2001 SD 87, 631 NW2d 175, requires a review of the specific contractual or policy 
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language to determine the intent of the parties. The circuit court concluded that 

Met Life's policy language fell short of excluding application of the made whole 

doctrine. The circuit court noted that Lester's claim for damage significantly 

exceeded the amount paid by Met Life. That significant claim was accepted and 

paid by USAA, Weter's insurer. 

[¶8.] Lester submitted a proposed decision. Met Life filed objections. On 

August 24, 2005, the circuit court signed a decision essentially identical to the 

proposed decision. On that same day, the circuit court also entered a judgment 

effectuating the decision. Lester provided Met Life with notice of entry of the 

judgment on August 25, 2005. Met Life filed a notice of appeal on October 20, 2005. 

ISSUE ONE 

[¶9.] Did the circuit court have personal jurisdiction over Met Life?

[¶10.] At the hearing on July 11, 2005, the circuit court suggested that the 

parties agree to submit to the jurisdiction of the court so that the matter could be 

resolved. Met Life agreed and made no further arguments about lack of jurisdiction 

until after the court ruled that the $2,685.18 belonged to Lester. 

[¶11.] The circuit court clearly had subject matter jurisdiction under SDCL 

15-6-67 and SDCL ch 21-43. A person may waive a lack of personal jurisdiction by 

submitting to the jurisdiction of the court and pleading on the merits. In re Estate 

of Green, 516 NW2d 326 (SD 1994); Union Bond & Mort. Co v. Brown, 64 SD 600, 

269 NW 474 (1936). That is what occurred during the July 11, 2005, hearing. Met 

Life will not be heard now to reassert a lack of personal jurisdiction after having 

agreed to submit to the court's jurisdiction. 
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ISSUE TWO 

[¶12.] Did the circuit court correctly interpret the subrogation 

language of Met Life's policy with Lester?

[¶13.] The right to subrogation is not new in South Dakota. A half century 

ago, this Court stated: "It is a well settled rule of law that an insurer is entitled to 

subrogation, either by contract or in equity for the amount of the indemnity paid." 

Parker v. Hardy, 73 SD 247, 248, 41 NW2d 555, 556 (1950). Though frequently 

repeated, that sentence is seldom parsed. Subrogation can arise out of two sources. 

First, the parties can agree to create a contractual right of subrogation. This is 

commonly done in insurance policies. Second, equity can require the creation of 

subrogation based upon the circumstances, even without a contractual obligation.* 

[¶14.] In Julson v. Federated Mut. Ins. Co., 1997 SD 43, ¶12, 562 NW2d 117, 

121 this Court implicitly addressed this distinction between equitable subrogation 

and contractual subrogation with the following language: 

Federated's contract of insurance specifically provides for 

Federated's right to subrogation after making full 

payment to Julsons as required by its contract. It is 

undisputed that there is no statement in the policy 

requiring Julsons to be made whole before subrogation 

may arise or at the time any settlement is made with any 

third-party tortfeasors. Thus, there is no question of 

material fact surrounding the policy language, and the 

terms are construed according to their plain and ordinary 

meaning. American Family Mut. Ins. Co. v. Elliot, 523 

NW2d 100, 102-03 (SD 1994). The plain language of the 

* For a good example of subrogation created by equity, see Application of Mach, 

71 SD 460, 465, 25 NW2d 881, 883 (1947)("Subrogation has been defined by 

this court as the mode which equity adopts to compel the ultimate discharge 

of the debt by him who, in good conscience, ought to pay it, and to relieve him 

whom none but the creditor could ask to pay. The right is not dependent upon 

an agreement, but rests upon principles of natural justice and equity.") See 

also, Buhl v. McDowell, 60 SD 22, 242 NW 638 (1932). 
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policy permits Federated to subrogate, file an action, and 

settle it after making full payment to Julsons. 

[¶15.] In short, the language of the Julson insurance policy created a 

contractual right to subrogation. The nature of the subrogation was governed by 

the terms of that policy. There was no need to apply the principles of equitable 

subrogation. 

[¶16.] This Court continued that line of analysis in Westfield, 2001 SD 87 at 

¶15, 631 NW2d at 180: 

We recognized in Julson v. Federated Mut. Ins. Co., 1997 

SD 43, ¶12, 562 NW2d 117, 121, that subrogation rights 

may arise independent of the common law "made whole" 

doctrine. In Julson, the insurance policy specifically 

provided the right of subrogation, without any 

requirement that the insured be made whole. Id.

Likewise, Westfield's policy provides: 

If we make a payment under this policy and: 

 a. The person to or for whom payment was 

 made has a right to recover damages from 

 another, we shall be subrogated to that right 

. . . 

 b. The person to or for whom payment is 

 made recovers damages from another, that 

 person shall: (1) hold in trust for us the 

 proceeds of the recovery and (2) reimburse us 

 to the extent of our payment. 

Rowe can point to no language in the policy or statutory 

authority which restricts this right of subrogation to 

instances where the insured has been made whole. 

Therefore, Westfield is entitled to reimbursement of the 

$144,660.69 it paid to Rowe. 
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[¶17.] Similarly, subrogation in this case is created and controlled by the 

language of the insurance policy between Lester and Met Life. Met Life's 

subrogation clause in Lester's policy read as follows: 

You must do everything you can to preserve your rights of 

recovery. When we have paid you for your damage or 

injury, your right to recover from others who caused the 

damage or injury will belong to us up to the amount we 

have paid you for the damage or injury, so don't sign any 

release without our permission. 

[¶18.] The circuit court concluded that this language did not create a right to 

subrogate in Met Life. This Court conducts a de novo review of the interpretation of 

contractual language. Gloe v. Union Ins. Co, 2005 SD 30, 694 NW2d 252; Sawyer v. 

Farm Mut. Ins. Co., 2000 SD 144, 619 NW2d 644. Although the language in Met 

Life's policy is less legalistic than that in Westfield, it clearly and unequivocally 

creates a right to subrogation. As in Westfield, Lester can "point to no language in 

the policy or statutory authority which restricts this right of subrogation to 

instances where the insured has been made whole." 2001 SD 87 at ¶15, 631 NW2d 

at 180. The language of Lester's insurance policy clearly establishes contractual 

subrogation and controls the nature and terms of that subrogation. 

[¶19.] This is not a case of equitable subrogation. "A court of equity is not at 

liberty to disregard the contract of the parties in this respect where deliberately 

made and clearly expressed, for equity follows the law and will neither make a new 

contract for the parties nor violate that into which they have freely and advisedly 

entered." Heikkila v. Carver, 378 NW2d 214, 219 (SD 1985) (quoting Jesz v. Geigle, 

319 NW2d 481, 483 (ND 1982)). The contract requires that Lester reimburse Met 

Life for the $2,685.18 it advanced to him. 
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[¶20.] Neither party to this action has requested that we reverse our rulings 

in Julson and Westfield. We are well aware of the public policy arguments 

advanced in Westfield Insurance Company, Inc. v. Rowe: The South Dakota 

Supreme Court Rejects the Common Law Made Whole Doctrine on a Property 

Insurance Subrogation Claim, 47 SDLRev 316 (2002). Any significant alteration in 

the law of contractual subrogation as suggested in that article would be within the 

province of the South Dakota Legislature. The South Dakota Legislature has not 

done so in the years since Julson and Westfield were decided and that article was 

published. 

[¶21.] The circuit court is reversed and directed to enter a judgment 

requiring Lester to pay $2,685.18 to Met Life. 

[¶22.] GILBERTSON, Chief Justice and KONENKAMP and ZINTER, 

Justices, concur. 

[¶23.] MEIERHENRY, Justice, concurs in part and dissents in part. 

[¶24.] MYREN, Circuit Judge, for SABERS, Justice, disqualified. 

MEIERHENRY, Justice (concurring in part and dissenting in part). 

[¶25.] I agree that Met Life waived the issue of personal jurisdiction. I 

disagree, however, that the circuit court erred when it denied subrogation. 

[¶26.] As we have stated, "[i]t is a well settled rule of law that an insurer is 

entitled to subrogation, either by contract or in equity for the amount of the 

indemnity paid." Parker v. Hardy, 73 SD 247, 248, 41 NW2d 555, 556 (1950). Even 

though subrogation may be provided by contract, the concept of subrogation 

originated in equity. We have explained, "'[s]ubrogation is an equitable doctrine 
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and depends upon a just resolution of a dispute under a particular set of facts.'" 

Julson v. Federated Mut. Ins. Co., 1997 SD 43, ¶8, 562 NW2d 117, 120 (citation 

omitted). Therefore, even if an insured's right of subrogation arises from contract, 

we cannot ignore the equitable origin of that right. 

[¶27.] Because of its origin in equity, subrogation is subject to the principles 

of equity. As the Nebraska Supreme Court explained: 

It is well established that in the absence of an express 

provision to the contrary, an insurance policy reaffirms 

the rights of parties relative to subrogation but does not 

alter the fundamental principles pertaining to 

subrogation. Therefore, if a contractual right of 

subrogation is merely the usual equitable right which 

would have existed in any event in the absence of a 

contract, equitable principles control subrogation. 

Cont'l W. Ins. Co. v. Swartzendruber, 253 Neb 365, 370, 570 NW2d 708, 711 (1997) 

(citations omitted) (emphasis added). One principle to which subrogation is subject 

is the "made whole" doctrine, which states that an insured's right to subrogation 

arises only when the insured receives compensation for all of the loss it incurred. 

See id. at 371, 570 NW2d at 712 ("Under principles of equity, an insurer is entitled 

to subrogation only when the insured has received, or would receive, a double 

payment by virtue of an insured's recovering payment of all or part of those same 

damages from the tort-feasor."). Therefore, a subrogation clause in an insurance 

contract does not necessarily preclude application of the "made whole" doctrine. 

[¶28.] Our cases, however, have not recognized these generally accepted 

principles of equity. See Westfield Ins. Co. v. Rowe, 2001 SD 87, 631 NW2d 175; 

Julson, 1997 SD 43, 562 NW2d at 117. In fact, a prominent insurance law 

commentator deemed our decision in Julson "authority to the contrary" of the 
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general rule that an insurer is entitled to subrogation only after an insured has 

been made whole. 16 Lee R. Russ & Thomas F. Segalla, Couch on Insurance § 

223:134 (3d ed 2000). Both Westfield and Julson refused to invoke the "made 

whole" doctrine because no contractual provision required that the insured be made 

whole before the insurer sought subrogation. For example, the provision at issue in 

Westfield stated: 

"If we make a payment under this policy and: 

a. The person to or for whom payment was made has a 

right to recover damages from another, we shall be 

subrogated to that right ... 

b. The person to or for whom payment is made recovers 

damages from another, that person shall: (1) hold in trust 

for us the proceeds of the recovery and (2) reimburse us to 

the extent of our payment." 

2001 SD 87, ¶15, 631 NW2d at 180. The Court concluded that because the insured 

could "point to no language in the policy or statutory authority which restricts this 

right of subrogation to instances where the insured has been made whole," 

subrogation was appropriate. Id.

[¶29.] This case, however, presents a situation ripe for application of the 

"made whole" rule. The contract provision at issue here merely restates the 

equitable principle of subrogation; it benefits neither the insurer nor the insured. 

As Met Life stresses, the provision does not condition its right to subrogation on the 

insureds being made whole. Cf. Julson, 1997 SD 43, ¶12, 562 NW2d at 121 ("It is 

undisputed that there is no statement in the policy requiring [insureds] to be made 

whole before subrogation may arise"). On the other hand, neither does the 

provision give Met Life's subrogation right priority over Lester regarding damages 

recovered from Weter. There is no language requiring payments to be "held in 
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trust," and there is no language precluding the application of the "made whole" 

doctrine. 

[¶30.] Because the contract provision does not unambiguously abrogate the 

doctrine, the generally accepted, based-in-equity "made whole" doctrine should 

apply. Therefore, in the absence of an express limitation, the circuit court correctly 

concluded that the provision "is a little short." The "made whole" doctrine precludes 

Met Life from seeking subrogation until Lester has received full compensation for 

his damages. 

[¶31.] The "made whole" doctrine is based on the theory that "where the sum 

recovered by the insured from the tortfeasor is less than the total loss and thus, 

either the insured or the insurer must to some extent go unpaid, the loss should be 

borne by the insurer for that is a risk the insured has paid it to assume." DeTienne 

Assocs. Ltd. P'ship. v. Farmers Union Mut Ins. Co., 266 Mont 184, 190, 879 P2d 

704, 708 (1994); see also Julson, 1997 SD 43, ¶10, 562 NW2d at 121 (quoting a New 

York Court of Appeals case stated that "[t]he ['made whole'] rule is based upon the 

nature of the relationship between the insurer and the insured—if the loss of one of 

the two must go unsatisfied, it should be the insurer who has been paid to assume 

the risk of loss."). This logic is especially relevant here, in light of our well-settled 

rule of liberal construction in favor of the insured. See Culhane v. W. Nat'l. Mut. 

Ins. Co., 2005 SD 97, ¶19, 704 NW2d 287, 293. Because the contract is silent 

regarding the "made whole" doctrine, we should construe it in favor of Lester. The 

majority's decision does the opposite. 
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[¶32.] More important, in the absence of a subrogation clause, this Court 

would undoubtedly allow an insurer to subrogate based on the equitable principles 

of subrogation. In the absence of specific language to the contrary, the insured 

should also be allowed to invoke the equitable principles of subrogation—in this 

case, the "made whole" doctrine. The principle of fairness inherent in equity should 

run to both the insurer and the insured. 

[¶33.] For these reasons, I would affirm the trial court.